One of the simple dictionary meanings of capitalism is an economy based on private enterprise. It is also possible to simply define capitalism as the use of markets not planning to allocate economic resources. Based on factual evidences, capitalism is widely regarded as the economic system of the west. Before the collapse of the Berlin Wall and the subsequent disintegration of the Soviet Union in the early 1990s, the Eastern world was highly considered as the “socialist economic block”.
The great majority of the world for long considered the American capitalism as the best, if not perfect, capitalism among the capitalist west. The American capitalism perceived as an economic system which reward best the one who is entrepreneurial, innovative and working hard. In the capitalist Europe, the story is also similar.
The recent economic crisis which devastated the United States and Europe has long lost its breaking news status. What is news then is the measures they are taking and its impact. The United States and Europe, though both are capitalists, they took different strategic measures to mitigate the multi-faceted impacts of the crisis and to lubricate the long stacked wheels of their respective economies.
To this effect, the United States picked an expansionist approach and pumped hundreds of billions of dollars in order to stimulate its contracted economy while Europe adopted a squeezing approach and took a long list of austerity measures.
The United States in its expansionist approach and economic stimulus measures bailed out a number of its giant business empires in which the world for long believed them as too-big-to fall and cut or limited the huge compensation pay schemes of the CEOs. Europe on the contrary in its very many austerity measures, in addition to social security and other public benefits, drastically and significantly cut both the work force and their salary.
Two years after taking its expansionist measures, the United States start picking its harvest. The contracted economy very slowly but steadily start moving forward and managed to create hundreds of thousands, if not millions, of more new jobs. Europe on the other hand is still very busy in its austerity measures tightening the people’s belt beyond its limit. By doing so what Europe is currently witnessing is not the fast increase of its terribly contracted economy, rather the number of angry people filled the streets in protest of their government’s austerity measures and committing suicide.
Evaluating their respective corrective measures, some economic analysts start comparing the capitalism in the United States and European Union particularly the much crisis affected euro zone area. With the euro zone up against the ropes, all signs are that the U.S. economy and economic model reign supreme. Sure it is. But the United States has its problems too, including a severe bout of long-term unemployment.
Remember all the talk much amplified by the mainstream media that Chief Executive Officer (CEO) talent is so rarefied that its price can only be measured in double-digit millions per annum? That audacious proposition, trumpeted confidently from media towers in New York City and London, used to be a core tenet of the United States -UK consensus on the global economy.
The evidence, meanwhile, is undeniable that plenty of that presumably extraordinary talent is imbued with many shortcomings. CEOs aren’t so superhuman after all. From launching failed corporate strategies, egregious errors of proper oversight, gross infidelities with staff, pumping up resumes in the style of blustery 19-year olds who really do not yet know better, the C-suite increasingly seems like a comedy of human failings.
On mid June 2012, Jamie Dimon, Chairman and Chief Executive of JP Morgan Bank has apologised for the bank’s losses of two billion dollar on high risk trades. He said the losses occurred because traders were poorly managed and did not understand what they were doing. Following his announcement of the obscene amount of lose, what followed was the outrageous comments of share holders and financial analyst in which wiggling their fingers towards the CEO and asked him what the hell he was doing and where the hell he has been while the company made such a huge lose.
To be sure, CEOs are put under great pressure. But these are tough times for most people working in large corporations. The difference is that certain “talent” has been indoctrinated since the days of business school that they are something special and, unlike the rest of the corporate workforce, certainly deserve something very special: namely, exorbitant compensation.
But on this front, the U.S.-UK alliance is finally cracking. Just as is the case in the field of banking, the “old country” is no longer prepared to toe the American line either on the uniqueness of the financial sector or the extraordinariness of executive talent. A long time in the making, there is finally solid pressure on restricting top executive pay in London. That is long overdue, all the more so as the political cultures of both countries, Britain and the United States, traditionally pride themselves of being such exemplary democracies.
Wherever their special democratic character can be found, it certainly is not in the corporate world. U.S. CEOs often reign supreme in a near-autocratic manner, imbued with multiple titles from Chairman to Chief Executive to President and all-encompassing powers. No separation of powers here whatsoever.
How about annual shareholder meetings? You must be kidding. As David Rivera in his book entitled “A history of the new world order” humorously stated that they are about as significant as rubber-stamp sessions in Soviet-style parliaments. Often lasting less than an hour, they are merely a perfunctory exercise so that the corporate secretary can tick off a box. “Annual meeting?” Done. Check. Any real debate at shareholder meetings about items that are essential to the future vitality of capitalism in democratic societies are, as much as possible, prevented. A vote about levels of executive pay? Motion denied. Not debated here.
As David Rivera further noted, the prevailing mindset is this: “You, Mr. or Mrs. Shareholder, give us your capital and we then set our pay. You ought to be grateful that I serve thee as chief executive. It’s your privilege, not mine.” And they call that “shareholder capitalism?” Shareholder Hostage Taking would be more appropriate.
Naom Chomsky, the noted American economic and social critic well explained, it’s no better when one looks at the role of boards of directors. Ever since the days of Enron, it’s been clear that these are important bodies that can and should prevent bad things from happening. But in the United States and Britain, they are still largely “friends and family” affairs, meaning they are packed with like-minded cronies, if not in fact the CEO’s own friends. The biggest battle over capitalism in the age of global democracy, quite irrespective of all the Occupy Movements, isn’t even over preventing disasters like the meltdown of Enron. Rather, it concerns a proper weighting of the competing interests at stake between corporations and society at large.
If corporations largely act in a vacuum, if there is no real control over them from society’s perspective, then things can become truly unhinged such as in the case of exorbitant executive pay. Reading most news reports about U.S. corporations in the newspapers one will find that it’s almost always about reducing staff size, reorganizing the corporate structure and the like. Optimizing corporate strategy for the future, working with employees to make the most of existing or future business opportunities? Such things happen all too rarely in the largely top-down American corporate model. With the media largely complicit since they are dependent as they are on corporate advertising dollars, corporations see any advances from society on issues such as executive pay and corporate strategy as untoward attempts to soil the heavenly domains of The Corporation.
Yet, the results are clear enough. The U.S. model of corporations, put in a global context, is better only in what it delivers to the insiders at the very top of the corporate hierarchy. For them, the corporate till is for the looting, provided the board has approved it. Compare that, for example, to large German corporations. Historically, Germany hasn’t been known as a bastion of democracy. And yet today it is and nowhere more so than in its boardrooms. In Germany, these august bodies are half filled with representatives of the workforce.
Little wonder then that they cast a much closer eye on corporate pay. In fact, the mere presence of company workers and unions representatives in the boardroom does much to prevent the more egregious, self-serving propositions from ever seeing the light of day which top executives, left to their own devices, might come up with. Whatever the “it” is, they realize it would never pass even the most basic smell test with the unions.
Nor does oversight in Europe end at the boardroom. Moves to reign in the C-suite are taking on steam in the European Parliament, which has increasingly become a reform engine for a more accountable capitalism globally. Just this month, the EU’s top financial services regulator, Commissioner Michel Barnier, launched initiatives to curb “morally indefensible” pay and to reduce the disparity between executive and ordinary work pay in Europe’s financial institutions.
The United States has not yet caught up with or caught on to these efforts. The very self-absorbed and self-referential debate or, worse, the lack of any true debate that has become the hallmark of U.S. corporations has done much to weaken the case for capitalism in democratic societies. If the practice of corporate power constantly exhibits core traits of the feudalist era, as it does in the US case, rather than pursuing a more open, democratic and enlightened model, then it goes to show that the rot currently afflicting many developed economies has a lot to do with other nations still following, even aping, many elements of the autocratic U.S. model.
The relevance of society at large in that model is about as significant as the role of finance was, at least until recently, in the made-in-America macroeconomic models that is, not at all. Both excel by their absence. In short, it is high time to push the U.S. corporate model from the pedestal on which it still stands. To a large degree, its elevated status is no longer a function of actual performance and what it delivers in a larger societal context, but just a result of the benefits it offers to the insiders at the top of the corporate pyramid.
The track of capitalism
Manufacturers say NBE acts inconsistently
Even though the National Bank of Ethiopia (NBE) has mandated several preconditions and laws for banks to follow in order to reduce the hard currency shortage, manufacturers claim that the process is not being followed properly. Meanwhile bankers argue that they are focusing on their profitability.
Businesspeople Capital interviewed said their industry mostly secures a letter of credit (LC) from public financial firms as opposed to private banks, who have been strictly advised to give priority to manufacturing after acquiring some basic import items.
Senior banking experts that Capital spoke about the issue said that even though the central bank made strict rules they are distributing their hard currency to the sectors and businesses that maximize their profits and give more advantages.
A senior baker, who worked on one of the old established banks, said that it is obvious that banks find ways to bypass the NBE law for the sake of profit. He said there is uncounted hard currency, even though the resource is very limited. “In this case banks are looking for customers who are coming with different benefits for banks,” he said.
A senior expert said that even the central bank applied directives banks do not follow the directives strictly. He said that the LC is one of the areas that the regulatory body has not properly followed the implementation. “There is a huge limitation and lack of capacity by the experts at NBE besides the weak follow up of the operation of the banks,” he added.
In this serious hard currency shortage, sources said that even though there is a NBE directive that requires on a first come first serve basis, “one of the private banks operating in the country has approved over USD 50 million within a short time interval for a single importer, who is not engaged in the export sector. While there are several customers waiting for long period on the registration list of the bank to get the foreign currency,” a source said.
The NBE directive issued in 2016 stated that 40 percent of the LC’s must go to the imports of the priority sector. The import of petroleum, fertilizer, agricultural machines, inputs, spare parts, medicine and related items, industrial inputs and accessories, supplement food for babies, are mentioned as a priority for the hard currency allocation.
Official sources at banks, who demands anonymity, admitted that the first come first serve or priority import goods of the NBE are not properly applied by banks. “We are giving a priority for customers who come with better deposit or benefit of the bank,” one of the bankers said.
“Even though some times NBE issued a directive it is not properly followed that gives plenty room for bankers to abuse the sector,” another banker said.
However the manufacturing sector actors who are mainly engaged on import substitution or export complained that they are almost stopping their production, while others that import the finished products that can be produced locally are accessing the hard currency. One of the manufacturers told Capital that he has opened an LC at one of the private banks he could not get the foreign currency because another investor secured thousands of dollars from private banks within a short period of time to import the goods the manufacturer produces locally.
Manufacturers complained that despite NBE regulation that considered the priority and benefit of the economy, it is not properly controlling the banks day to day activity whether they are following the registering line or the priority sectors.
“Recently the central bank penalized bank leaders on illegal activity in relation with hard currency allocation, while the sector is highly corrupted on different and visible conditions,” a business actor who has close relation with the banking sector expressed his observation. Manufacturers claimed that the Prime Minister Office should be involved on the issue to see the challenge at the central bank and commercial banks. “Our hope on the financial regulatory body has vanished,” the manufacturers said.
“It is confusing why the central bank prefers silence in this regard,” he added. Other experts recommended that the hard currency illegality that is seen on private banks might be tackled if the government facilitated about USD one billion that can be disbursed not at once but within few periods of time. Manufacturers have expressed their concern that the shortage of hard currency might create an economic crisis in the near future since several heavy and medium industries that managed over a 100 thousand employees halting their operation for several months. Manufacturers have claimed that what they are producing is not higher than 10 percent of their capacity and the others have already shut their factories due to lack of input.
Budget grows by 3.6 % in birr, shrunk by 15% in dollars
The Ministry of Finance and Economic Cooperation (MoFEC) has tabled the 2018/19 budget at the parliament with a lower capital budget compared with the 2017/18 budget year.
In his 22 page budget speech Abraham Tekeste (PhD), Minister of MoFEC, tabled a proposal which will most likely be approved by the parliament before the end of the current budget year. The budget is 346.9 billion birr. This is a growth of 3.6 percent compared with the current budget year. Even though the budget has shown a 12 billion birr increase it has significantly decreased compared with hard currency, which is the major resource for importing items.
Accordingly in the 2017/18 budget year the government’s budget was USD 13.9 billion, which has now shrunk to USD 12.5 billion because of the 15 percent devaluation applied in October 2017.
Even thought the government has approved 320 billion birr for this year the actual disbursement has been reduced by 50 billion birr according to the Finance Minister.
He said that for the budget year it has been targeted to collect over 200 billion birr from tax. “While the actual collection would not be expected to surpass 150 billion,” he said. For the current budget year several governmental projects have been transferred due to lack of the expected funds from tax.
The tax collection has been very weak, according to Abraham. He stressed that the tax collection has to be closely followed for better performance.
The budget documents indicated that for the coming budget year the tax collection will be 211 billion birr. The external assistance and external loans are 19 billion and 32.7 billion birr respectively, while the balance is coming from different government investment and other incomes. The budget deficit is 2.3 percent of the GDP or 59.3 billion birr.
The capital budget for the federal government is 133.6 billion birr, which a reduction of 4.4 percent compared with the preceding year or over one billion birr. The capital budget reduction is an extraordinary situation for the sector since in the past it showed significant growth compared with the preceding year. The subsidy appropriation to regions has stood at 135.6 billion birr which is a 15.7 percent increase compared with the preceding year and it is the 39 percent of the total budget, while the recurrent budget is 91.7 billion birr.
AFRICA & BIG POWERS
Once again, big powers politics in Africa is in full swing. The west, besides leveraging its economic dominance, is militarily positioning itself all across the continent. North Africa has already seen military onslaughts. Gaddafi was deposed and the Sahel was destabilized (Libya, Mali Niger, etc.) Whatever the pretexts of the day for incursion (military or otherwise) the real interest remains the same; the control of Africa’s mineral and other wealth! AFRICOM (the US Command newly set up to deal with the ‘dark continent’, to use a Eurocentric phraseology) and other institutional tools of the west are readied to be unleashed full scale to facilitate more extraction as well as contain the BRICS, particularly China. Ascending powers like China have tried to make their own inroads, mostly by utilizing the strategy of ‘give and take’. By and large, Africans have benefitted from China’s engagement!
China is still a novice when it comes to playing power politics on a global scale. For instance, China’s dealing with Africa, centered almost exclusively via the nation states, might have won it some temporary victories, but it won’t be enough. If China wants to secure the trust of Africa’s multitude, it has to go deep, so to speak. Even though, the general African sheeple (human mass) is still positively disposed towards China’s engagements, it lacks knowledge/understanding about China’s long history, to say nothing about our own history of colonialism and flag liberation. On its side, China must start becoming a bit more critical of states that do not respect the wishes of their own population. For example, stealing goons seating on the boards of SOE (state owned enterprises) involved in the extraction sector (petroleum, etc.) should not be allied with, because in the long run criminal activities will negatively impact not only China’s image, but also its tangible material interests. When the going gets tough, it is these thieving characters that flee to the west from their own countries of birth exposing China to unsuspected risks!
In addition, China should deeply appreciate the complexity of Africa’s nation states that have diverse populace. Its old strategy of ‘people to people’ should have been elevated to genuine relations that encompass all, not only commerce. China’s image as an obsessed scion of crass mercantilism (in late modernity) cannot on its own, support large-scale initiatives, which by their very nature involve more than mere trade and investment. For example, Africa’s component of the Belt and Road Initiative (BRI) need a thorough sensitization, in order to mobilize sufficient support from the people who reside on the ground. High-level discussions on such issues are necessary but not sufficient. The Chinese policy of exclusively relying on the ever-changing African states, (some failed and failing) not only governments, has started to take its toll. China must do more to win the ideological heart of the African sheeple on a continuous basis, if it wants long-term genuine collaborations.
How is China trying to transform the global order? What is a multi-polar world system, which the BRICS and others are trying to bring to fruition? What is China’ s vision, come fifty years from now? Is it more of the same, like the current western objectives (domination) or does it have concrete plan to save life and life support systems on the planet? What does China mean by ‘Ecological Civilization’? Most importantly, how do they plan to involve the rest of us in these endeavors? Such discourses are conspicuously absent, particularly at the grass root level in Africa, where it matters most. This information gap must be rectified!
On the other hand, the West has no illusion about Africa’s aspirations and potential. Genuine liberation from wants is not going to be achieved by heavily relying on debt and largess from the rich countries of the west. That has been tried and failed. What must be attempted is; a robust dynamic policy that clearly understands our position in the world system. Polarizing globalization, in which we find ourselves in, is not to be celebrated, but rather to be fought tooth and nail. Our western educated elites (with the exception of tiny few) do not understand this phenomenon. That makes them quite dangerous. Russia and the East European countries tried to follow that route and we know where they ended up. The largest country on the face of the earth became mere playground of oligarchs at the service of monopoly capital. Western strategy plays on all fronts and at all levels. From the education of the African elite, to the NGOs, to the diaspora, to the hyphenated elites, to dominant media/entertainment, to IMF/BW, to AFRICOM, etc., all tools are used, rather effectively. An important and disturbing feature one observes about the west is; it is only the logic of capital and not the logic of life/humanity that seem to matter in collective societal existence. This is scary! Commodified life only leads to unfulfilled way of life; frustration, violence, increased use of drugs, legal (Opioids) or otherwise! See Meijer’s article next column and others on page 43,60 & 62.
The whole objective of capitalist modernity, it seems, is not to benefit the global sheeple. That is, at best, only a side activity, a mere by product of the accumulation strategy. Herein lies the difference between the west and the rest of us! Worshipping ‘monopoly capital’ and its tutelages cannot be the alpha and omega of existence. Africa needs to learn a whole lot from the experiences of others, who have been at it for quite a while. To this end, we need sober and erudite reflections. Unfortunately, Africa also runs short in this department. What we have in abundance is ‘belly thinkers’ or zombified intellectuals who preach for our complete subjugation, without even knowing what they are talking about. Who can blame them? After all, they are paid to disseminate propaganda not wisdom, which they conspicuously lack. To the dismay of many, it is this ‘intellectuals yet idiots’ (Nassim Taleb of ‘Black Swan’ fame) or what we call the ‘Ivy Idiots’ that are allowed to dominate public spaces and attendant discourse on our continent!
Here is an old Ethiopian proverb relating to the above predicament: “Trying to collect dung where there have been no cows is a futile exercise.” Good Day!
